Recent International Activities and Future Focus of IRS LB&I

ABA Section of Taxation May Meeting, 2014 Washington, DC

Our Panel

Fred Murray, Panel Chair Grant Thornton LLP Washington, DC Rocco Femia Miller & Chevalier, Chartered Washington, DC

Michael Danilack Deputy Commissioner (International) Large Business & International Division Internal Revenue Service Washington, DC

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Previous Changes Affecting International Enforcement at IRS

• October 2010 – All LMSB international resources were realigned into a new organization and “LB&I” was created

• February 2012 – APA program, previously operated as a Chief Counsel function, merged with the Mutual Agreement program to form APMA

• September 2012 – Transfer Pricing Practice (TPP) was formed with a staff of about 60 focused on transfer pricing cases in the field • APMA and the TPP are united under the Director, Transfer

Pricing Operations (TPO)

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Recent Changes Affecting International Enforcement at IRS

• Early 2013 – Foreign Payments Practice (FPP) was formed with a staff of about 70 focused on administration and enforcement of provisions of Chapter 3 (FDAP withholding), Chapter 4 (FATCA), Chapter 61 (1099 reporting), and section 3406 (backup withholding) pertaining to payments to NRAs and foreign entities • Ted Setzer takes FPP Director role

• September 2013 – New position, Director of International

Strategy was formed • Diana Wollman takes Director role

FPP Field Practice

• Functions • FPP’s international examiners conduct audits of Forms

1042/1042-S filed by U.S. withholding agents

• Experienced examiners devote significant time to training and mentoring less experienced examiners

• Staffing • Territory Manager: David Oyler (Chicago)

• 6 withholding examination teams (CA, FL, IL, NJ, NY, TX) – approx. 55 employees

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FPP Program Office

• Functions • Coordination of activities of Financial Intermediaries Program

(responsible for FATCA and QI compliance)

• Coordination of activities of Planning & Analysis Office (analysis of specialized withholding data to identify compliance trends and potential workload)

• Staffing • Senior Manager: Kimberly Schoenbacher (New York)

• 2 teams (Financial Intermediaries Team and Planning & Analysis Office) – approx. 18 employees

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Director of International Strategy

• The DIS position was created to drive LB&I’s developing strategic approach to international tax enforcement

• Under our strategic operating model, any employee can play a role in developing and executing our international strategy

• The DIS is tasked with:

• developing and overseeing a knowledge management process by which all employees can share knowledge and strategic thinking

• developing and overseeing a strategic planning process that prioritizes employee contributions to arrive at one cohesive strategy for deploying resources against international compliance risk

• ensuring that technical training is available to support strategic assignments

• evaluating the effectiveness of these efforts and making any necessary adjustments

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Deputy Commissioner (International)

DCI Michael Danilack

Washington, DC

Director, IIC David Horton

Downers Grove, IL

Assistant DCI Douglas O’Donnell

Washington, DC

Director, Int’l Strategy Diana L. Wollman Washington, DC

Director, IBC Sergio Arellano

Downers Grove, IL

Director, TPO Samuel Maruca Washington, DC

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International Strategy

Director, International Strategy Diana L. Wollman

Washington, DC

Senior Advisor for IPN Strategy Roula Karavtis New Haven, CT

Senior Advisor for Training Strategy Margie Maxwell

Austin, TX

Remainder of Strategic Team under Development

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Assistant Deputy Commissioner International

Assistant DCI Douglas

O’Donnell Washington, DC

TAIT Dave Varley

Washington, DC

JITSIC Team Mgr Cheryl A. Teifer Jacksonville, FL

Foreign Posts

Tax Attaché - Tm 1 Dean Burke

London, England

JITSIC James D. Carroll Washington, DC

Tax Attaché - Tm 2 Aziz Benbrahim

Paris, France

Tax Attaché - Tm 3 Thomas Stevens

Frankfurt, Germany

RSR Raul Pertierra Plantation, FL

Tax Attaché - Tm 8 Chinchie Killfoil Beijing, China

Exchange of Information Nancy Wiltshire Washington, DC

Overseas Operations Kelli Winegardner Washington, DC

Program Manager Tina Masuda

Washington, DC

IITA Kelli

Winegardner Washington, DC

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International Business Compliance

DFO - West Sharon Porter

Downers Grove, IL

Intl Practice Networks Margie Maxwell

Austin, TX

Intl Data Management Bill Holmes

Washington, DC

Foreign Payments Practice Ted Setzer

New York, NY

Training Sohelia Crane

(acting) Laguna Niguel, CA

DFO - East Jolanta Sander

Chicago, IL

Director, IBC Sergio Arellano Downers Grove, IL

Project Manager Khin Chow

Downers Grove, IL

Assistant to the Director Orrin Byrd Atlanta, GA

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Foreign Payments Practice

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Manager, FPP Territory

Director, FPP Ted Setzer

New York, NY

Senior Advisor, Foreign Payments

Team Manager, Foreign Pmts

Planning & Analysis

Team Manager, Financial

Intermediaries

Team Manager (NJ)

Team Manager (IL)

Team Manager (CA)

Manager, FPP Program Office

Team Manager (NY)

Team Manager (TX)

Team Manager (FL)

International Data Management

EA Operations Carolyn Morton Greensboro, NC

EA Technical Carolyn Gray

Washington, DC

Director, IDM Bill Holmes

Washington, DC

Sr Mgr Data Operations Barry Levine Hartford, CT

Sr Mgr Data Services Mary Maruska Sarasota, FL

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International Individual Compliance

Intl Practice Network Roula Karavitis New Haven, CT

Central Withholding Agreement Judith McNamara Downers Grove, IL

Director of Field Operations Pam Drenthe Chicago, IL

Nonresident Compliance Initiatives (PSP) Jeanne Fisher

Greensboro, NC

Offshore Compliance Bryan Stiernagle

Brooklyn Center, MN

Director, IIC David Horton

Downers Grove, IL

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Transfer Pricing Operations

Director, TPO Samuel Maruca

Washington, DC

Transfer Pricing Practice

Intl Practice Network John Kaffenberg

Edison, NJ APMA Richard

McAlonan Washington, DC

EA Operations Carla Langland

Atlanta, GA

Senior Tax Advisors: Howard Berger

Eli Hoory Washington, DC

Senior Economic Advisors: Russell Kwait Bill Morgan

Washington, DC

Special Projects Stan Perry Atlanta, GA

Assistant to the Director Clifford Scherwinski

Phoenix, AZ

EA Technical Nanette Hamilton

San Jose, CA

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Transfer Pricing Practice

Director, TPO Samuel Maruca Washington, DC

Territory Manager - East Matthew Hartman

Reading, PA

Territory Manager - Central Thomas Ralph

Denver, CO

Territory Manager - West Nancy Bronson

San Francisco, CA

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Deputy Director Lisa J. Beard

(acting) Washington, DC

Advance Pricing Mutual Agreement

APMA 2 Hareesh Dhawale

(acting) Washington, DC

APMA 1 Vacant

Washington, DC

APMA 3 Judith Cohen

Washington, DC

APMA 5 James McOmber Washington, DC

APMA 7 John Hughes

Washington, DC

APMA 9 Patricia Fouts

Washington, DC

APMA 11 Charles Larson Washington, DC

APMA 4 Peter Rock

San Francisco, CA

APMA 6 Vacant

Washington, DC

APMA 8 Kenneth Wood

Washington, DC

APMA 10 Dennis Bracken Los Angeles, CA

APMA 12 Victor Thayer

Los Angeles, CA

Director, APMA Richard McAlonan Washington, DC Deputy Director

Hareesh Dhawale Washington, DC

Assistant to the Director Lisa J. Beard

Washington, DC

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IRS Integrated International Program

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Across all of International, our compliance strategies, collaborative networks, training programs, and data

management efforts are based on a foundational framework called the International Matrix

Training

Networks

Strategy

Data

INTERNATIONAL MATRIX

Metrics

Risk indicators and possible data sources

Strategic issue

priorities

Training needs (on-demand and formal)

Training Strategy

Data and knowledge management

construct

Feedback / Examination Outcomes

“Bottom-up” issue

identification

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IRS Integrated International Program

The International Matrix is the foundation for the Integrated International Program

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The International Matrix

INDIVIDUAL INBOUND

US Business Activities

Withholding

INDIVIDUAL OUTBOUND

Foreign Tax

Credits

Pass-Thru Entities

Foreign Corporations

Offshore Arrange-

ments

Jurisdiction to Tax

Income Shifting

Inbound Financing

Repatriation/ Withholding

Income Shifting

Deferral Planning

FTC Management

Repatriation

Treaties Information Gathering

Foreign Currency

BUSINESS OUTBOUND

Jurisdiction to Tax

BUSINESS INBOUND

Organization/ Restructuring

STRATEGIC PRIORITIES

Treaties

Foreign Currency

Information Gathering

Organizations/Restructuring

Income Shifting

Deferral Planning

FTC Management

Repatriation

IP Transfers

High Value Services

Risk Allocation

Core Transfer Pricing

Gain Exportation / Loss Utilization

Inversions

Foreign Base Company Sales

Issues

Foreign Base Company Services

Issues

Foreign Personal Holding Company

Issues

Special Regimes

Creditability

Accessing FTCs

Accessing FSI

Section 956 Issues

Corporate Restructurings

Other Strategies

Business Outbound Face

STRATEGIC PRIORITIES

Treaties

Foreign Currency

Information Gathering

Organizations/Restructuring

Jurisdiction to Tax

Income Shifting

Inbound Financing

Repatriation/ Withholding

Business Inbound Face

FCCs

US Branches / PEs

Agency Branches / PEs

Specialized Treatments

Transfer Pricing for FCCs

US Branch / PE Allocations

Gain Exportation / Loss Utilization

Loans through low-tax affiliates

Hybrid Instruments

Cashless Debt

Foreign Parent Guarantees

Other Strategies

FDAP Payments

Branch Profits Tax

Branch Level Interest Tax

FIRPTA

ECI through Partnerships

STRATEGIC PRIORITIES

Determination of Residency

Status Creditability CFCs

Partnerships Merchant Accounts

Insurance Taxation of

Citizens and Residents Trusts Brokerage

Accounts

Expatriation FTC Calculation

/ Limitation PFICs

Offshore Banking Disregarded

Entities Possessions Hedge Funds

Treaties

Foreign Currency

Information Gathering

Jurisdiction to Tax

Foreign Tax Credits

Foreign Corporations

Pass-Thru Entities

Offshore Arrangements

Individual Outbound Face

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STRATEGIC PRIORITIES

Identification of a U.S. Trade or Business or Permanent Establishment

(PE) Payments of FDAP

Effectively Connected Income (ECI) FIRPTA

Compensation from Employment ECI through Partnerships

and Trusts

Foreign Athletes and Entertainers

Treaties

Foreign Currency

Information Gathering

U.S. Business Activities Withholding

Individual Inbound Face

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International Practice Networks (IPNs)

Business Outbound Business Inbound Individual Outbound Individual Inbound Crossover Areas

Income Shifting Outbound

Jurisdiction to Tax Jurisdiction to Tax U.S. Business

Activities Treaties

Deferral Planning Income Shifting

Inbound Offshore

Arrangements Withholding Foreign Currency

FTC Management Inbound Financing Foreign Tax Credits Information Gathering

Repatriation Repatriation / Withholding

Foreign Entities Organizations / Restructuring

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International Practice Networks

• The IPNs are employee communities seeking to network in broad areas of international compliance

• Organized around the segments of the International Matrix, IPNs are the engine for international strategy, training, and data management

• International employees are regarded as experts on international issues, and the IPNs provide the tools they need to broaden, enhance, and share their expertise

• The IPNs provide international employees the opportunity to both learn from and teach their colleagues

International Practice Networks

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IPN Steering Committees

• Each IPN is supported by a steering committee comprised of technical specialists, managers, and Division Counsel and ACCI attorneys

• The steering committee members manage the IPN and are dedicated to the collection, organization, and sharing of collective expertise

• The IPN steering committees are not authoritative bodies • They do not issue guidance, advice, or determinations on issues

associated with specific cases

• Rather, they facilitate collaboration and knowledge sharing among employees by managing the IPNs

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The International Practice Service

• The IPS will be a central repository for the collective knowledge and expertise of our International staff

• Will consist of a library of practice units and other knowledge content organized around the International Matrix

• The IPS content will function in two ways:

• as a job aid and

• as components of a new international training program

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Areas of Current Focus

• Offshore non-compliance

• Enforcement efforts

• OVDP

• FATCA implementation

• Exchange of information enhancements

• Mutual Agreement Program

• New MAP Forum

• APMA and new Rev. Proc.

• FTC creditability

• Transfer pricing compliance

• Withholding and information reporting compliance

• 1120F compliance

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Areas of Current Focus

• Developing a comprehensive strategic planning process to address all critical international compliance risks

• Enhancing training programs

• Working better multilaterally

• Planning for the future

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